To Sell or Not to Sell - 4-Unit

[Matthew Spiers]

Hey everyone, I don't post here as often as I should, but I've been mulling over something for far too long without asking for advice from actual RE investors. I currently live in Florida but have lived and invested in St. Louis, MO for several years (prior to moving). Because of the incredibly hot market in FL for multifamilies, I ended up actually starting a 4-unit development project that I'll have deeded as condos. As far as I understand, I have 2 options I can't seem to decide between:

1) Sell each of the condos individually and make a significant profit (a few hundred thousand) that I can then take and invest in other projects.

2) Hold onto the 4-units, rent them out with short-term rentals (I have a setup that will cash flow significantly for the area), and then use that property as collateral and a HELOC to purchase other properties.

There are different sides to both, with 1) being that I'd have to pay taxes since I probably won't be able to find a good property (or properties) in the right time for a 1031, but it'll allow me to have the cash right now. While 2) allows me to cash-flow and have livable income, fast-growing equity, but then I'll have to manage the rentals (I'll have a PM for that) pretty closely. That second option also means I have to wait until the property's built while I can pre-sell the condos under option 1.

Can anyone please offer some insights on thoughts you'd have?

[Matt Devincenzo]

I'll throw this in for consideration...if you sell the units as condos you will very likely not be claiming the earnings as 'capital gain' and be able to complete a 1031. Your project is a new development just like any other builder and is the creation of inventory for sale, meaning you will have a hard time defending that your intent was to hold these units as an investment. So that means you'll be paying your marginal income tax rate as well as SE tax etc. 

Personally I'd probably hold since I prefer the long term gain.